The Importance of Life Insurance

An essential part of financial planning is creating provisions for your family and loved ones following your death. Life insurance can ensure financial security to those who mean the most to you, such as your spouse, children and dependent parents. A carefully executed life insurance policy can help prepare for life's uncertainties and give peace of mind knowing that the future of those who rely on you is secure.

Life insurance pays for immediate expenses. Bills can start accumulating fast in the event of a death. Life insurance can be used to pay for immediate expenses, such as funeral services, unsettled hospital and medical bills, mortgage payments, business commitments and meeting college expenses for children.

It's a cash resource. Life insurance gives access to cash to pay for grocery bills and other daily expenses. It also helps secure your estate by providing tax-free cash to pay estate and other obligations.

Your family's standard of living can be maintained. With the right coverage, your family's lifestyle and standard of living can be sustained, adding much needed normalcy during a difficult time.

You have a wide range of options. There are two basic types of life insurance: Term life and whole life. Term life policies offer death benefits, so if you die, you will get money back, but if you live past the pre-determined length of the policy, you get no benefits. Whole life or permanent insurance is more expensive, but these policies are open-ended and also accumulate a cash value that the policyholder can earn dividends and borrow against—or cash-in upon surrendering the policy.

Customize your policy and coverage. If you have dependent children, a spouse and parents to care for, you'd want a policy that would protect them after death. Typically, policies are opened for the breadwinner of the family, but a stay-at-home spouse's contributions are often overlooked. You might consider a policy to cover childcare, carpooling and household chore expenses in the event of a stay-at-home spouse's death. On the flip side, as you get older and children or parents are no longer dependent on you for income, you can reduce your coverage or drop it entirely.

Adequate coverage makes a difference. An old school rule of thumb is that your life insurance policy equals five to ten times your annual income. Nowadays, advisors will look at the number of dependents you have, how long they will be dependent upon you, and the lifestyle they expect to live after your death. It's not a simple equation, but in general, you will need more coverage than a typical plan offered by an employer, which usually totals one or two years of your gross salary.

You can improve your credit rating. A life insurance policy is considered a financial asset and may increase your credit score, which could be beneficial when trying to obtain medical insurance or a home or business loan.

Life insurance may be exempt from bankruptcy. Most life insurance plans will not be affected by bankruptcy and will remain intact if you claim bankruptcy. However, you'll need to confer with a bankruptcy expert, as each case is unique.

Life insurance is not a simple product. It's wise to talk to an expert who can walk you through the pros and cons of available plans and help choose coverage that works best for your individual situation, now and in the future. offers insurance services and free consultations. For more information, contact UNIFY Members’ Financial Services.

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